Tuesday, July 15, 2008

For the US to bring down the price of oil significantly enough to benefit me as well as Exxon we'd have to do the following:

1. Open up ANWR for drilling. Not just ANWR, but all the coastlines, all the national parks, all the places that the oil companies have been spoiling for over the years. This will increase supply to meet demand.

2. Probably double refining capacity. Every summer when the price of gas goes up, a press release is issued saying that the refineries are processing as much as they can, but the demand is greater. And one of them is always being repaired during the peak summer months. We want to keep that price stable, we need redundancy in the refinery system. Besides, they system we have now can't handle even the small amount of American oil we put through it.

3. Forbid the oil companies, who are investing their money in new drilling and refineries, from marketing American product outside the US. This isn't actually that big a deal because the demand is there. However, it will likely mean a lessening of imports as they shift that product to other markets. If we produce more oil and import less, the net effect could be the same amount of oil. So for the scheme to work, we have to import the same amount and increase domestic supply. So look for increased regulation of the oil industry. And sorry, we have to give up the dream of "less dependence on foreign oil."

4. Okay, here's the tough one: convince the oil companies that it is in their best interests to charge less. This will be a hard one because they have just spent all that R&D money, plus as businessmen they will be turning down profits, leaving money on the table. After all, if we're used to paying X for gas, why sell it to us for X/2? Unless the Government steps in to the oil business in a big way (much like they do with the savings and loan business) we can assume the prices will be about where they are now.

As you can see, this plan depends a lot on the good graces of the oil industry. In fact you can say that it boils down to whether you think Bobby or J.R. is in charge. My money is on J.R. but hey, who knows? Maybe these guys feel bad about charging what they do now. As a goodwill gesture, they could drop the price of a gallon a couple of bucks for a while.

Of course, if you believe that the price of oil is purely dictated by supply and demand, we could test that by bleeding the strategic oil reserve a little. Just to prove it.

If I'm taking your meaning, you belived that Bush rescinded the executive order, the market waited a day for Bush to chide Congress, and once he SPOKE then they knew that soon we'd be drilling domestically, supply would increase and speculators knew, finally, that the price would be driven down.

MY answer, however, is that the market collectively realized that the artificially high price was going down and started selling before it got even lower. I honestly don't think that they believe that Congress is going to approve drilling because the President whined at them about it again.